Everett v. State Farm General Insurance Company
Court of Appeal of the State of California, Fourth Appellate, District Division of Two
Filed April 30, 2008
Cite as 2008 SOS 2535

California CA, Affirms Trial Court’s Decision in Homeowner’s Insurance Issues

The pertinent facts are as follows:

On October of 1991, Agnes H. Everett purchased a home located in Chiquita Lane in San Bernardino, California for approximately $ 99,000. She also purchased a homeowner’s policy from State Farm General Insurance Company through Bryan Hendry, the agent, with the policy number 75-BJ-7254-8.

The insurance policy included an endorsement for guaranteed replacement cost coverage, with the provision, that the State Farm General Insurance Company would pay the full amount needed to repair the damaged or destroyed dwelling with like or equivalent construction, without regard to the policy limits. It was renewed annually on September 25.

August of 1993, the service of Everett’s insurance policy was transferred to agent Desiree Sarnowski. With the transfer, Sarnowski on her part did not inspect the property, nor did Everett request Sarnowski to inspect the property. Everett also never asked Sarnowski to review her policy or increase the limits.

In the year 1997, State Farm General Insurance Company eliminated the guaranteed replacement cost coverage in its homeowner policies. On this score, in order to provide its insured’ with ample warning, the State Farm General Insurance Company sent each policyholder a notice of the change in coverage. They made certain its notice complied with applicable law.

In the notice, State Farm General Insurance Company informed its insured’ that if they chose to renew their homeowner policy with State Farm General Insurance Company, the guaranteed replacement cost coverage would no longer be available.

The notice further specified the changes to the policy in the manner of reduction or elimination of coverage. In that notice, the insured’ were notified that “GUARANTEED EXTRA COVERAGE and GUARANTEED REPLACEMENT COST COVERAGE were eliminated and that their policy now has a stated limit of liability under Coverage A that reflects the maximum that will be paid in case of loss. And that, unless an “Increased Dwelling Limit” is shown in the declarations, the policy no longer provides a guarantee to replace your home regardless of the cost.

On her part, Everett does not deny that she received this notice.

On September 29, 1997, Everett accepted the homeowner’s policy with State Farm General Insurance Company under the new terms providing for a stated policy limit.

Each year from 2000 to 2003, State Farm General Insurance Company sent a renewal certificate to Everett. The renewal certificate provided Everett with a yearly reminder that it was her responsibility to insure her home with adequate coverage.

Thus, while State Farm General Insurance Company provided Everett and other insured’ with a replacement cost estimate, State Farm General Insurance Company’s renewal certificate was clear to explain that the amount of the estimate was just that — merely an estimate.

The renewal certificate included the following:

• The State Farm replacement cost is an estimated replacement cost based on general information about your home. It is developed from models that use cost of construction materials and labor rates for like homes in the area. The actual cost to replace your home may be significantly different.


• State Farm does not guarantee that this figure will represent the actual cost to replace your home. You are responsible for selecting the appropriate amount of coverage and you may obtain an appraisal or contractor estimate that State Farm will consider and accept, if reasonable.


• A higher coverage amounts may be selected and will result in higher premiums.

In addition to the annual renewal certificate, every two years State Farm mailed to its California insured’, including Everett, a “California Residential Property Insurance Disclosure, in compliance with Insurance Code section 10102.

On October 25, 2003, Everett’s home was destroyed by fire.

Eventually, Everett submitted a claim to State Farm General Insurance Company under her homeowner’s policy.

One of the first tasks undertaken was to determine the scope of Everett’s coverage. Following the assessment, State Farm adjusted Everett’s claim and paid her $138,654.48 for her structural loss and $76,620 for her personal property. These amounts took into account the increased sum under Everett’s Option ID provision and the increase for inflation and Ordinance/Law coverage.

Thus, on March 25, 2005, Everett initiated an action against State Farm General Insurance Company and its agent, Desiree Sarnowski in the Superior Court of San Bernardino County, asserting the following claims:

• Breach of contract


• Breach of implied covenant of good faith and fair dealing


• Negligence,


• Reformation of contract


• Fraud

In her contract claims, Everett asserts in these respects:

• First, she alleged that the policy in effect at the time of her loss provided guaranteed replacement cost coverage such that she was entitled to full payment to replace her property without regard to policy limits.


• Alternatively, she alleged that State Farm failed to provide her with sufficient notice of the changes in her policy and thus her prior policy containing guaranteed replacement cost coverage should remain in effect.

On April 21, 2006, State Farm General Insurance Company filed a motion for summary adjudication on the ground that Everett’s policy, which was in effect at the time of her loss, did not include guaranteed replacement cost coverage

On its part, the State Farm General Insurance Company, made the following arguments:

• That Everett received sufficient notice about the change in her coverage with her 1997 renewal notice.


• With respect to Everett’s claim for bad faith, State Farm General Insurance Company claimed there was no breach and thus no bad faith.


• Finally, State Farm General Insurance Company argued that Everett’s fraud-based claims were invalid because it never represented to her that her home was covered for up to 100 percent of the amount to replace her property.

On July 6, 2006, the Superior Court of San Bernardino County granted State Farm General Insurance Company’s motion for summary adjudication.

Later on, State Farm General Insurance Company filed a motion for judgment on the pleadings as to Everett’s remaining claim for reformation.

The motion was granted and judgment was entered in favor of State Farm on August 17 by the Superior Court of San Bernardino County.

Thus, Everett appealed the trial court’s findings in the Court of Appeal of the State of California, Fourth Appellate District Division of Two.

On appeal, Everett contends that the judgment must be reversed for the reason that State Farm General Insurance Company did not pay the policy limits on the code upgrade coverage and that the policy, which promises to replace her home while stating a limit, was unclear.

Along with the other pertinent issues, the appellate court had chose resolve the issue on whose fault is it when properties are underinsured.

Thus, the Court of Appeal of the State of California, Fourth Appellate District Division of Two made the following pronouncements.

• Where homeowner's policy stated that the amount payable on a claim for destruction of the dwelling was determined solely by looking at the declarations page, the only reasonable interpretation was that if the cost of replacing the home exceeded the amount specified, the insurer's obligation would be limited to payment of the specified amount.


• Insurer was not required by law to increase coverage in order to make certain that policy would pay full amount necessary to replace dwelling if necessary. The burden is on insured to ascertain periodically whether insured has adequate coverage.


• Any duty on the part of insurer was met by giving annual renewal notices that reminded insured that it was her duty to make certain that her coverage was adequate.


• Everett’s claim that insurer's agent misrepresented the extent of her coverage failed as a matter of law, where insurer notified insured in writing of the policy amendment eliminating guaranteed replacement coverage. Any subsequent oral representation that she had such coverage would have been inconsistent with the integration clause of the policy.


• Written notice of amendment eliminating guaranteed replacement coverage satisfied statutory requirement that insured be notified in writing of any reduction in, or elimination of, coverage.

In full, the appellate court affirmed the trial court’s judgment.